Jim Grant: Honey, I Shrunk the Yield Curve!!

Published time: 14 Dec, 2012 23:30 Edited time: 16 Dec, 2012 15:35

Jim Grant: Honey, I Shrunk the Yield Curve!!

Welcome to Capital Account. Whether it's going over the fiscal cliff or Spanish house prices suffering a severe fall, there seems to be a universal financial fear of gravity. Even though we are certainly scared of falling, we don't seem to have much fear of altitude. But should we? We talk to Jim Grant, founder and publisher of Grant's Interest Rate Observer, about his bi-monthly outlook for some answers.

On this show, we have openly wondered if the extraordinarily low interest rates charged to the US Treasury have been the result of the Fed’s voracious appetite for fixed income securities over the past four years. There is no question that yields have been eviscerated by Fed policy, but is it the result of Fed policy past or present? Is it the current presence of the Fed in the bond market that is keeping rates low, or was it the Fed’s accommodative monetary policy during the boom years and the subsequent urge by the private sector to relieve itself of overpriced assets in the bust that has kept yields from rising? In either case, we find fault with the Federal Reserve. It seems the Fed can now claim this: “Honey I Shrunk the Yield Curve!” Only in this scenario, policy wonks in control of the “shrink ray” seem hardly concerned about our new microscopic interest rates. If anything, the lower they go, the more the Fed may print, forcing a new class of indentured investors to go out and scavenge for more yield on the front lawn. We talk to Jim Grant, founder and editor of "Grant's Interest Rate Observer" and author of "Mr. Speaker!", about the recent announcements from the Federal Reserve.